-- You Better Not Cry: Santa Rally Unlikely --
By Vivian Chu
NEW YORK (Reuters) - After three straight years of
declines, Wall Street needs a Santa Claus rally more than ever.
Many investors say that a traditional stock market rally
that occurs just before Christmas and continues into the new
year is not in the cards this year.
If that's true, then beware the bear.
"If Santa Claus fails to call, the bears may come to Broad
and Wall," said Jeffrey Hirsch, editor of the Stock Traders
Almanac, referring to the lower Manhattan intersection where
the New York Stock Exchange is located. "That means if there's
no Santa Claus rally, it could be the first warning sign of a
bear market."
Santa Claus tends to visit Wall Street almost every year,
bringing a short but respectable rally in the last five days of
the year and the first two in January, said Hirsch. The
so-called "Santa Claus rally" has been good for an average 1.7
percent gain since 1969, or 1.5 percent since 1950.
Many investors, though, doubt that such a rally will occur
this year.
"I don't think we'll see a Santa Claus rally," said Joseph
Kalinowski, chief investment officer at Ehrenkrantz King
Nussbaum Inc.
"Analysts are expecting anywhere from 15 percent to 20
percent earnings growth for the S&P in the fourth quarter,
which I think is too optimistic," Kalinowski said, adding that
he believes companies will revise their earnings projections
lower in the coming weeks.
In the past week, major indices eked out modest gains. The
blue-chip Dow Jones industrial average <.DJI> is up 0.93
percent, while the broader Standard & Poor's 500 Index <.SPX>
is up 0.72 percent. The tech-heavy Nasdaq composite index
<.IXIC> is up 0.1 percent.
Trading volume is usually anemic in the last week of
December, and this year it could be even lighter than normal
due to the timing of the holidays. This year, Christmas and New
Year's fall on Wednesday, smack in the middle of the week.
"It's always a dicey thing when the holiday lands in the
middle of the week," said Benjamin Pace, managing director at
Deutsche Bank Private Banking.
"We'll be leading into a week that's going to be very
fragmented, since a lot of people are going to take part of the
week off, or all of it."
Last year, trading volume averaged 871.3 million shares a
day over the shortened Christmas week, compared with an average
daily volume of 1.24 billion, said a NYSE spokeswoman.
"We're not seeing a lot of activity the way the holidays
have shaped up this year, with Christmas (and New Year's) on
Wednesday," agreed Robert Mikkelsen, managing director of
institutional sales and trading at The Advest Group. "Many
people are done for the year."
For Mikkelsen and others, ringing in the new year won't
come a second too soon, given that Wall Street has suffered
three bear years in a row for the first time since 1941.
"A lot of people in the industry, myself included, are very
happy to put this year behind us. What's going on in the world
is very discouraging, even on the portfolio level," he said.
IRAQ WAR LOOMS
As earnings season draws to a close and thoughts turn to
taking off for the holidays, a potential war with Iraq is the
wildcard that could disrupt the low level of trading that
typifies Wall Street this time of year.
Many will be paying close attention to events in the Middle
East that could cause investors to suddenly lose confidence in
the market.
"You'll have a dearth of corporate and economic news, but
geopolitical news doesn't take a holiday. If there's any
indication that we're going to war with Iraq, which is what
we're getting, then I think that could take the market sharply
one way or another," said Pace. "The anticipation of war is a
negative."
When trading volume is low, any major market-moving event
would likely exacerbate any swings in the market, Pace noted.
Rising oil prices and the Iraqi situation could continue to
weigh on stocks, analysts said.
In some of the toughest U.S. language to date on Iraq,
Secretary of State Colin Powell on Thursday said there would be
no peaceful outcome if Baghdad continued its "dissembling,"
though he implied a U.S. decision on going to war was weeks
away. He said Iraq is in "material breach" of a United Nations
disarmament resolution, a term that could lead to war.
Higher oil prices due to a strike in Venezuela will also be
key, analysts said. The turmoil in Venezuela, along with
tension with Iraq, have caused oil prices to hover around $30 a
barrel, near a three-month high on Friday.
"If oil prices are sustained at these higher levels, it
increases the odds of pushing the economy into a double-dip
recession," Kalinowski said.
Key U.S. economic indicators to be released next week
include a final figure for the University of Michigan consumer
sentiment index for December, which will be released Monday.
Analysts also said they will be looking for any news from
U.S. retailers, for whom the last week and weekend before
Christmas can make or break them for December.
"December same-store sales are coming in. I think retailers
will be coming under pressure because of a weaker Christmas
season," Kalinowski said. As retailers and technology companies
start to close their books for the fourth quarter, "they'll
start to provide guidance, and I suspect there's going to be
more negative preannouncements on the horizon," he predicted.
The weekly Redbook Retail Sales Average, a sales-weighted
average of year-on-year sales growth at discount, department
and chain stores open at least a year, will be released on
Wednesday.
On the earnings scene, just one Standard & Poor's 500
company -- greeting cards maker American Greetings <AM.N> -- is
scheduled to release quarterly results next week.
Wall St Week Ahead appears weekly. Comments or questions
can be e-mailed to Vivian Chu at vivian.chu@reuters.com.
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Symbols:
US;AM US;CSCO US;SPX XE;CSCO US;COMP US;SPL US&DJI
22-Dec-2002 13:00:54 GMT
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